Property Prices To Head South…Maybe

personOtto Darganaccess_timeMay 1, 2014

Property prices in Australia have hit a 10-year high but quarterly figures suggest the growth is slowing.

In its latest report, House prices: just the facts, the Commonwealth Bank (CBA) Global Markets Research Team found that house prices rose by 10.7 per cent over the 12 months to March, with unit prices rising by 9.6 per cent.

These figures are at the upper end of the range of the past decade, CBA stated.

Once again, Sydney and Melbourne led the charge with a 15.6 per cent and 11.6 per cent increase over the past year, respectively.

Demand is increasing

The surge in property prices has largely been the result of a supply and demand issue that has affected Australian capital cities for a number of years.

Population growth has been a major factor in pushing up this demand. This has not only been the result of birth rate growth but the fact that migration numbers are at the highest rates they’ve been in forty years.

The significant property investor segment has distorted the market somewhat, with the self-managed superannuation fund (SMSF) segment creating “demand for property that did not exist in the past”, according to the report.

From a supply point of view, the construction of new dwellings – which has been running at about 150,000 dwellings per annum in the past few years – has remained stagnant as a result of the competition for skilled labour and materials with the mining and infrastructure booms.

Nevertheless, with record low interest rates thrown into the mix, so-called accumulated demand from the past few years will continue to push house prices up.

Not necessarily, especially if a rise in interest rates have anything to do with it, according to Australian Property Monitors (APM).

How can growth be slowing?

A recent report from APM revealed that national house prices increased by 2 per cent over the March quarter to $614,348 but the growth rate was well down on the 3.8 per cent recorded over the previous quarter and the lowest result for a year.

Although Sydney rose by 3.1 per cent over the quarter and was the best performer of the state capitals, it was also the city’s weakest quarter result since March 2013.

While Melbourne, Brisbane and Adelaide all outperformed last quarter, Canberra and Hobart’s median house prices fell by 2.6 per cent and 2.5 per cent respectively. Perth was flat over the quarter with unit prices falling by 1.4 per cent.

“House price growth is set to continue through 2014 generally although at significantly reduced rates compared to 2013 and with the usual disparity of performance between local markets,” APM senior economist Dr Andrew Wilson said.

Is an interest rate change on the horizon?

With interest rates remaining unchanged since August 2013, Wilson added that the effect of these record lows is now “dissipating with the December quarter 2013 to be the high-water mark in the cycle for growth rates”.

The Reserve Bank of Australia Governor Glenn Stevens appeared to echo Wilson’s observation when he recently told the Credit Suisse Asian Investment Conference in Hong Kong that the 10 per cent plus growth was “unwelcome”.

The CBA report stated that house prices had “reached the point where further interest rate cuts are unnecessary and unlikely.”

So what do you think? Is house price growth slowing? Is an interest rate hike just around corner?